Time ripe for correction?

After moving within striking distance of the 18000-mark, the Sensex fell shy of this psychological barrier and closed on a slightly weak note on Friday.

There was a sense of uneasiness that was discernible from the way the markets behaved during the week. Though the long-term trend is bullish, there is a strong case for a meaningful short-term corrective phase to materialise soon.

The index has reached an overbought region across all time-frames. Such a situation is a precursor to a significant corrective phase.

With corporate earnings season kicking-off, the market is likely to get volatile and choppy in the near term.

It would be safe to take profits and wait for the market to correct before considering fresh exposure. Though the markets have displayed the tendency to stay afloat even amidst an overbought condition, the risk-reward equation does not justify initiation of fresh long positions now.

In the event of a short-term correction materialising, the index has strong support at 17,100-17,200 and then at 16,400-16,800. As observed last week, the long term bull market is intact and the index is on course to move to the target zone of 19,500-20,000.

This target would be valid as long as the support at 15,100 is not breached.

Nifty (5,185.85):

The index has moved further into the overbought region and the price action in the past couple of days is indicative of the uncertainty and nervousness among market participants.

Considering that the recent rally has not been accompanied by any significant correction, there is a possibility that the correction this time could be sharp and swift.

On the downside, the Nifty has strong support at 4750-4800. A short-term correction would be an opportunity to buy quality stocks as the long term trend is bullish.

The journey towards the next major target zone of 5,900-6,000 would commence on the completion of the expected short-term correction.

CNX IT Index (4,868.45):

The index is ruling just below the crucial bullish trigger level of 4900. A convincing move past this level would confirm the completion of a bullish double-bottom pattern that was referred to last week.

The index could then move to the target zone of 5400-5450 range. On the contrary, a close below 4490 would have bearish implications.

Key pivotals:

Unitech (327):

This stock has been recently included in S&P CNX Nifty. The short-term outlook is bearish and a drop to Rs 295-305 range appears likely.

The long-term outlook is bullish and the stock could move to Rs 380-400 range after the completion of the expected short-term correction.

The long-term bullish view would be negated on a close below Rs 280. Long positions may be considered on weakness with a stop loss at Rs 280.

Tata Steel (Rs 833):

The stock is in a long-term uptrend and is one of the top performers in the metals space. The recent price action indicates that the stock is into a short-term corrective phase.

A drop to the short-term support zone of Rs 730-740 appears likely. Long positions may be considered on weakness with a stop loss at Rs 720.

The stock could move to the long term target of Rs 975-1000 on completion of the short-term corrective phase.

Grasim Industries (Rs 3,544):

The long-term outlook is positive and a move to Rs 3900-4000 appears likely. However, a short-term correction is expected and the stock could drop to the support zone at Rs 3300-3350 range.

A break below Rs 3300 could lead to a test of the more critical support area at Rs 3150-3200. Long term bullish view would be negated only on a close below Rs 3100.

Stock of the week:

Bartronics (Rs 228.5):

After a sharp rally, the stock has been in a corrective phase in the recent weeks. It is likely to commence the long-term uptrend after testing the crucial support zone at Rs 200-210.

A move to the initial target zone of Rs 255-260 range appears likely on the completion of the corrective phase. The long-term bullish view would be negated on a close below Rs 188.

Long positions may be considered on the evidence of support in the Rs.200-210 range, with a stop loss at Rs 188.

Krishna Kumar